More on my fiction writing

March 27, 2009

Arizona's mysterious jobless rate

Why is Arizona's unemployment rate relatively low? The national rate in February was 8.1 percent, while Arizona's rate was 7.4 percent. This was 2.9 percentage points higher than in the same month last year, but well below California's 4.3 jump (to 10.5 percent) or Washington's 3.7 increase (to 8.4 percent).

This was the question that the Arizona Republic political columnist Robert Robb claimed to set out to answer in a recent column. I tend not to pay attention to Robb because he pretty much always says the same thing: status quo good, government bad, etc. Robb, the only editorial columnist for the paper, is not a journalist and came out of the "Goldwater" Institute and right-wing/growth machine political world. So one knows where he's coming from.

Not surprisingly, he uses this question to set up a straw-man. He disputes the notion that Arizona is too dependent on real estate, asserts that the state has "a fundamentally solid underlying economy," and deplores "various advocates of various dubious schemes to 'diversify' Arizona's economy." (A graceful stylist, no). So that's it. Move along. Nothing to see here.

I don't know who Robb is tilting against. Perhaps he feels the Kookocracy is too liberal. Sure, well-intentioned people try to keep such initiatives as Science Foundation Arizona and TGen going. Their goal has never been to disrespect real estate, but to attract and create high-paying jobs that would actually help real estate. But they are politically weak. The momentum of 2002-2003 has been lost and the Great Disruption will make catching up impossible -- especially with a reactionary Legislature. Arizona's fate has been sealed. It has the economy it has: largely tied to housing, tourism and services, mostly low-wage. The high-tech sector is much smaller relative to the population than in, say, 1980. Arizona doesn't want to play in the global economic big leagues. The debate is over. The Real Estate Industrial Complex won.

I can't resist a detour into one piece of chaff that Robb throws off: "Housing does not create its own demand. Something else has to draw
people to an area, which in turn creates the demand for housing." A classic booster talking point. Actually, metro Phoenix is an example of Say's Law, where the French economist Jean-Baptiste Say stated that supply inherently creates demand. Public policy was long tilted to make housing there as cheap and abundant as possible, with the real public costs of population growth pushed forward. All those Midwesterners wouldn't have come if they and their developers had been taxed for the public services, infrastructure and environmental damage they cost. The region became a feedback loop where population growth created hundreds of thousands of jobs in fields related to population growth, whether in real estate, construction, retail, etc. It "works," dolorous side-effects notwithstanding, until rapid population growth stops -- or until the financial Ponzi scheme of the housing bubble collapses.

Anyway, why is Arizona's population rate relatively low?

1) I don't trust that the state Department of Economic Security is adequately funded to make an accurate count. After years of underfunding, DES is now getting cut by another $153 million. This is a problem with most state agencies, the commerce department being a favorite whipping boy of the Kooks. And there's a penalty everywhere in state government, including universities, for delivering what is seen as "bad news." Remember, even the national numbers severely undercount the real unemployment problem. They don't get into those not "actively" looking for work (generally checking in weekly at the unemployment office), those underemployed, etc. If those are factored in, the real national rate could be between 13 percent and 16 percent.

2) Arizona pays such poor unemployment benefits, and the economy is so limited and producing so few jobs right now, that there's less incentive for people to be on the "active" rolls of the unemployed, Many are instead living off their savings, moving in with relatives, etc. Also Arizona has a thriving underground economy, based on gun-running, drug smuggling and people smuggling.

3) The huge workforce of illegals aliens will not be eligible for benefits and will be fearful of authority, particularly in Arizona. Thus, there's a huge cohort of productive people who would be first and hardest hit by joblessness (and their souls no less sacred to God than any blue-eyed Anglo's) that we're simply not tracking.

4) Arizona has tremendous population churn, which has never been adequately quantified: rootless people come and go. They are more likely to move somewhere else in hopes of getting work, but soon ending up on that state's jobless rolls. The big population changes can also skew statistics.

5) Arizona has a huge service industry built on part-time employment, with people accustomed to holding down two or even three jobs at once with no health benefits or retirement savings. This is hardly the American middle class of the mid-20th century, but it is the kind of highly malleable workforce that can move from one low-wage job to another. The alternative is even worse: some of the lowest unemployment benefits in the nation. (Could this be much of America's future?).

6) Much of the growth machine still sustains jobs. The huge retiree cohort uses the pensions they amassed in another America -- one of good jobs and benefits -- to support assorted Wal-Mart clerks, hair-dressers, landscape crews and house remodelers. They also get Social Security. There's a sizable cohort of people from inland California who cashed out of their houses and are living on those nest eggs, supporting service jobs and, for now, avoiding filing for unemployment.

7) As with the 2001 recession, Arizona's lack of diversity and lack of high-paying jobs "helps" it, by this measure at least. It has relatively fewer jobs connected directly to the global economy to lose. It doesn't have, say, 200,000 aerospace jobs facing falling airplane orders, or a port to suffer from the trade collapse, or a major bank headquarters to fail...

These are informed suppositions. I'd be interested in what readers have to say.

Now, beyond the unemployment rate: Arizona created only 2,100 net non-farm jobs in February for a state of 6 million -- "well below" its 10-year average, according to the state. A total of 173,000 jobs were eliminated. In March 2006, by contrast, more than 150,000 jobs were added. So the state isn't even keeping up with the natural increase in the workforce, much less being able to offer employment for newcomers. So much for the unemployment rate as booster bragging right.

In any event, it gives only one thread of the state's economic, social and environmental well-being. We already know homelessness and poverty are rising, adding to a well-known set of metrics where the state and metro Phoenix perform abysmally. And the unemployment rate has nothing to do with Arizona's, and Phoenix's, long-term challenges, which will be made much more difficult because of this recession. But, as I say, the debate has been settled. This is what you get, bragging rights for 7.4 percent unemployment and all.

ADDENDUM: Just to be clear, I didn't even choose to argue whether the metro Phoenix economy is dominated by industries and jobs dependent on sprawl. That's another debate that was settled long ago, including by a series in the Republic showing that an astounding one in every three jobs in the region were related to these sectors. (The series provoked fury in the Real Estate Industrial Complex). Of course, construction jobs are only one of the livelihoods associated with the phenomenon, ranging from real estate agents to home improvement workers to mortgage salespeople to commercial real-estate staff, etc., etc.

Keep up with reality-based news about Arizona and the Kookocracy on Rogue's special report pages.

Comments

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The talking points that come out of right field are often brazenly asserted if only to forgo a genuine assessment of actual events. In this case, the transfer payments that support a huge retiree population (SS and Medicare) also support a large health-care component dependent on that market. The retail, gaming, and tourist components are artificially buoyed that way as well.

So, what's going to happen when people stop moving here when they can no longer cash out their homestead? Or when Arizona's vaunted quality of life interfaces growing border violence and urban poverty? Or when Arizona's youth are left out of the economic mix and move elsewhere?

Bob Robb was cheerleading the housing boom as late as 2007. His blinders permanently fixed, he can no more see the reality of this place than libertarians can see the complexity in anything beyond Laffer curves and John Stossel infomercials.

It looks like Mr. Talton has done an excellent job covering the bases here.

However, a discussion of state unemployment rates in the recession tells us nothing if the rates before the economic collapse are not used as a starting point. Mr. Robb fails to do this at all, and Mr. Talton has selected the wrong time frame.

If you compare unemployment rates for May 2007, and February 2009, you see that Arizona's rate more than doubled, from 3.6 percent to 7.4; California's did the same, from 5.2 to 10.5; and Washington state did similarly but fared a little better, moving from 4.5 to 8.4 percent.

So, it occurs to me (belatedly) that a major part of the answer to the "mystery" may simply be that Arizona's current unemployment rate is lower because its original unemployment rate was lower.

The fact is that more than half of the jobs lost in Arizona were in the construction sector; this is scarcely an argument that Arizona has a diversified economy; on the contrary, it shows excessive concentration in real-estate development, just as Mr. Talton has been saying all along.

Note: I am having difficulty reconciling the figures given by Mr. Talton in his "beyond the unemployment index" paragraph with Bureau of Labor Statistics data:http://www.bls.gov/eag/eag.az.htm

Note that this site is well organized, very easy to use, can be switched to metro data (Phoenix-Mesa-Scottsdale) and that clicking on back data (the little green dinosaur) gives an easy to read table including the current data.

Note that the U.S. unemployment rate was 4.5 percent in May of 2007 and was 8.1 in February of 2009.

It's useful to consider what I call the layoff rate: the difference between the two unemployment rates, before the recession and now, in percentage points.

For the U.S. during this period, it was 3.6; for Arizona it was 3.8, and for Washington state it was 3.9; for both states, then, the layoff rate is roughly in line with the national average.

Note that in a general recession, the layoff rate is independent of the question of whether an economy is diversified: the layoff rate gives the percentage of jobs lost so far in the recession, whereas the diversification (or concentration) of the economy merely determines the distribution of those lost jobs amongst the various economic sectors.

According to Mr. Robb, 2/3 of the jobs lost in Arizona were in construction, which seems to argue strongly that the Arizona economic is overconcentrated in that sector, not that it is diversified.

On the other hand, it could be argued that in the current recession, the housing market was the first and (so far) primary victim, so that one would expect construction job losses to constitute an unusually high percentage of total job losses in many states.

Note that in May 2007, construction jobs in Arizona constituted 8.5 percent of all non-farm jobs; for Washington state the figure was 7.1 percent.

On that basis alone, it doesn't seem as if Arizona is unduly reliant on construction. However, this may be misleading, since the question is whether the other economic sectors are unduly reliant on new construction (e.g., the spread of retail shops into expanded suburbs, as opposed to the enlargement of a manufacturing base independent of suburban growth). For this reason, it might be more meaningful to compare the economies on a quantitative, sector by sector basis.

Unfortunately, my online time is extremely limited and I can't comfortably research this issue or compose an analysis, at the moment.

It just goes to show that there are lies, damned lies, and statistics. Using the same Feb. 2008 to Feb. 2009 time frame that Dave Wells does, but using these BLS tables for Arizona and Illinois:

I find that Arizona's employment decreased by 22,434 jobs, and that its unemployment increased by 94,225. If that seems to defy logic, bear in mind that Arizona's labor force actually increased by 71,791 during this time, so that the increase in unemployment is partly the loss of jobs, but mostly the increase in the labor force (unable to find jobs).

I find that Illinois employment decreased by 306,898 jobs, and that its unemployment increased by 173,901. That's possible because Illinois' labor force, unlike Arizona's, decreased during this time, by 132,997.

So to me, on the basis of this data, it looks like, even accounting for population differences, Illinois lost a lot more jobs, but its unemployment statistics looked better than they otherwise would have simply because a huge number of individuals left its labor force (note that this could mean that they left the state, or that they stopped "actively looking" for employment, or some combination).

Of course, Dave Wells holds a doctorate in political economy and public policy; I hold a G.E.D.; I don't even want to know what Robert Robb holds, because I suspect that the appendage belongs to the Goldwater Institute.

I do enjoy reading Robb, simply because he makes a good scratching post. His arguments have a specious plausibility that makes them interesting to destroy, as opposed to some of his fellow conservatives who depend on vague rhetoric. It's like playing someone in chess who isn't as good as you, but whose errors aren't always obvious.